When HP announced their intent to purchase Palm back in April 2010, we were all caught off guard. The world's biggest PC maker had just plopped down $1.2 billion on little 'ole Palm with the promise of spreading its webOS operating system from smartphones to the brave new world of tablets, printers, and even desktop computers. Microsoft, too, it seems was caught off guard. Shortly after HP went public with the Palm buyout, Microsoft got their largest customer to agree to a contract that wasn't a big deal at the time, but now could make things more complicated for the future of webOS at HP.

Microsoft's move was protective. Their goal wasn't, as some have postulated, to kill webOS. Microsoft wasn't concerned too much about the potential of webOS to eat into their business, but then again, two years later, Microsoft just now seems to be realizing the threat that tablets running operating systems other than Windows (i.e. practically all tablets right now) pose to their business. Microsoft's goal was to protect the code of Windows, specifically Windows RT, which runs on the same ARM core processors as webOS did at the time (Open webOS, due out in full next month, will be using the Linux Standard Kernel and can run on practically anything). It was still several months before Microsoft would reveal that Windows 8 would run on ARM chips, but Microsoft has long had a history of working closely with OEM partners like HP on upcoming versions of Windows.

Understandably concerned about the potential for even inadvertent copying of the intellectual property that is part of Windows RT, Microsoft got HP to agree to a contract that prohibited the teams working on Windows tablets at HP from also working on webOS devices. While much of the code in Windows would not have been useful to the webOS team, checking out the customizations and optimizations Microsoft was working into their ARM kernel could have been useful. It's understandable that Microsoft would want to avoid such a situation, thus the contract. We wouldn't be surprised if Microsoft had a similar contract with other OEMs that dabble in multiple operating systems, such as Asus and Lenovo. These sort of contracts aren't unprecedented, in fact they're fairly common in large, multi-faceted corporations with dozens of competing external relationships.

In essence, what the contract did was build a firewall between the engineering teams of the webOS Global Business Unit and those of the tablet engineers in the much larger parent division Personal Systems Group. Both were working on ARM-powered tablets, with the webOS GBU eventually pushing out the TouchPad and the PSG tablet team having not yet released an ARM tablet (for what it's worth, Windows 8 and it's ARM-friendly RT aren't yet available for sale).

We've spoken with several current and former high level employees of Palm and HP with knowledge of the contract, and most agreed that initially the contract was not an issue. There were a number of ways around the firewall, including a section of the contract that allowed HP to add employees to a list that enabled them to work on both webOS and Windows RT projects in a limited capacity (in so much as one can 'self-firewall' their brain). They all agreed that the intent of the contract was not to kill webOS or even leave their webOS projects hamstrung by limited resources - Microsoft merely wanted to protect their own work. The contract didn't even have any provisions to allow Microsoft to check the webOS kernel to ensure Windows code wasn't being copied. Given the option, HP declined to provide official comment on this matter.

We all know what happened next. After the Think Beyond event in February 2011, HP launched the Veer in May and the TouchPad in July. Neither did particularly well in the market, though we could argue for weeks whether or not HP could have salvaged the TouchPad instead of canceling it outright in August. September brought the first of the serious bloodletting in the webOS Global Business Unit, with the thousand-employee unit getting split in two. The software side was sent over to the HP Office of Strategy and Technology under EVP Shane Robison, the hardware side was left to whither away as part of the PSG.

It took another three months for HP to come up with a plan for webOS, opting to open source the mobile operating system after billions of dollars of investment. The webOS group is much smaller now, numbering less than two hundred, with no hardware engineers to develop new hardware. They're exclusively a software unit now, unable to develop a new webOS tablet if they wanted to. This means that HP's options for a new webOS tablet are limited. HP could hire a bunch of new hardware engineers into the webOS unit to make it happen, though we'd likely be looking at another year's worth of waiting as they'd be starting from scratch organizationally and from a design and engineering standpoint.

Another option is for the PSG's tablet engineers to make a new webOS tablet, except that those with expertise and experience making ARM tablets for Windows RT wouldn't be able to work on the webOS project (given the relative power efficiency of ARM vs. Intel and Intel's very recent entrance into the tablet- and smartphone-worthy processor market, we'd wager on ARM to be powering any new webOS hardware). While it wouldn't necessarily be a bad thing to have separate teams, HP would have to give consideration to where best to dedicate their best talent - Windows RT or webOS, not helping both projects. Work shared between the teams would be curtailed, leaving HP with parallel tablet efforts, even if they're using the same hardware components.

In the post Leo Apotheker world for webOS, the contract with Microsoft that started as a minor inconvenience has the potential to blossom into a full-blown headache at HP. The real irony here is that HP listened to a different master when picking a processor for their first Windows 8 tablets. Instead of ARM, HP's sticking with the familiar confines of x86 from Intel.